A friend suggested I go to a Budget Adviser how does that work, is it a good idea?

I guess the answer to that question is best answered by a Budget Adviser and there seems to be plenty of them throughout the country.

Here are a few things to consider when approaching a Budget Adviser.

A Budget Adviser’s role is to put together a financial statement of your position - to look at what your income is and what your fixed costs are and see what is causing you financial stress.

Income is your total net income after tax

Fixed costs are things which you pay regularly like rent, car payments, fixed loan payments, minimum payments or you current credit card, power, water etc

Disposable income is the amount of money you have left after you have paid your fixed costs

Most of the time the reason most people find themselves in a pickle is that they have too many fixed costs coupled with their spending and not enough income.

As you can see this is not too difficult to work out for yourself. Simply make two columns, on the left put your net income (take home pay) and on the right put your fixed costs (like rent etc). Total them up and the difference is your disposable income (money you have left to spend).

The problem with disposable income is it will include spending on the necessities of life like food, getting to work, clothes etc, and if the disposable income remaining is not enough, then the fixed costs will need to be looked at to see how they can be reduced or your income increased.

If you find this too confusing a Budget Adviser will do that for you. They may also look at your fixed costs to see if they can be reduced including loan payments, and may approach a finance company on your behalf to see if the payments can be rearranged so your payments are more manageable.

Some Budget Advisor organisations will take over the management of your finances for you, and they will charge you a fee.

Some concern you may have with any advisers is what exactly is their qualification to give you advice? Any advice you get should not be taken blindly, look at how you feel about it. Doing your own budget is not brain surgery, five minutes with a list of what you spend and your payslip will tell you the basics.

Are finance companies and banks required to help me by reducing my payments?

The answer is it depends:

Finance companies and banks are required to act reasonably to a borrower’s change in financial situation if they don’t have the ability to make their payments; this means they are unlikely to be unreasonable in accepting a reduction in the amount of your payments or suspension as long as you can provide evidence of a change in your circumstances.

The key to having your payments reduced or suspended for a period of time is that the loan must not be in default or arrears when you make the request. If you have been dodging the lender, not making any payments, and then approach them to reduce your payments they will have no obligation to do so.

My finance company has told me they have listed me on Veda as a default what does this mean?

Veda Advantage is the credit reporting agency that all banks and finance companies and other businesses use when looking at credit applications.

A credit report can only be accessed by the person themselves, and other organisations who you have given permission to request a credit check. The most common way a credit check is approved by you is when you complete an application, it will contain your approval for the company to do a credit check.

Veda credit reports contain a list of all the different businesses who have asked for a credit report on you for the last 5 years and it will also contain the last 3 changes of addresses you have used.

Where you have defaulted on payments, this will show up as a default which generally will show how much you owe, what type of debt it is and the company you owe it to. If you have since paid that debt, the record will remain but it will show as “paid”. Minor defaults could include defaults with a power account, telephone account etc. If you have a default from a finance company or a bank or other financial institution then that would be considered a serious default and would likely mean your application for credit would be declined.

All records of previous applications you have made, and any defaults you have will stay on your credit report for 5 years. Veda also provides a “credit score”. This has a maximum number of 1000 points and can run into negative figures as well. As a general rule a score of 500 would be an average risk score, while 1000 would be the best you could be. Apart from whether you have any defaults or not there are other factors which will affect your credit score:

a) Your age
b) The age of your credit file (if you have been in the country a short time)
c) The number of companies you have applied for credit who have done a credit check
d) The kind of companies who have done a credit check and the frequency
e) Any defaults

The very worst credit report will be for someone who has been declared bankrupt or has applied for a No Asset Procedure, these reports give no credit rating and are reported as “insolvent” and this will appear on the credit report for 7 years.

Due to the internet, it’s quite common for people to make multiple applications for credit at the same time. This can have an adverse effect on their credit score.

Can you make money by saving money?

A friend texts Eileen and invites her for a coffee at the shopping mall. They meet up exchange goss and decide to take a look around the shops while they are there.

Eileen finds an amazing pair of shoes which look great and are 60% off the original $300 price saving $180. This is fantastic! Not only has Eileen got these great new shoes but she also has saved $180 as well!

Jane goes to the supermarket as usual for her weekly shop and comes across the paper towels she always buys which are on special, usually $4.50 a pack, today they are $2.99 a pack - a saving of $1.51. Being a smart cookie, Jane figures since she uses a pack of the paper towels a week and is saving $1.50 each pack, she buys 10 packs saving $15.

Let’s compare both these transactions:

Eileen is now $120 worse off than before she went to have coffee with her friend and Jane is better off by $15. Sure Eileen has another great pair of shoes to stuff in her wardrobe but the bottom line is Eileen has $120 less in her bank account.

Now Jane’s deal seems a bit of basic arithmetic but it also demonstrates ROI which is Return On Investment.

Jane has spent $30 for 10 packs of paper towels which if were not on special would have cost $45. As a percentage this represents a return on her investment of $30 or over 60%.

I know saving a few bucks at the supermarket is not going to make you rich but analyzing the ROI is what financial institutions all over the world base their business on and you can too.

The trick is to be able to recognize when saving money is making you money or making you poor.

Here’s a simple test. If you are going shopping for a particular item (not browsing at the mall like our friend Eileen) and you have made a decision that purchasing that item is required then any saving could be a situation where you have achieved a ROI.

In his book, Charles Dickens gave this advice. "expenditure 99 cents, income $1, results happiness, expenditure $1.10, income $1, result misery"

Being rich is not about how much money you have - being rich is simply, do you spend less than you make? A real good place to start is don’t go to the shops unless you need to.

Here is some ideaís to stretch your budget

Takeaways and grocery shopping without a list are not going to help you stretch your budget.

Instead try planning a menu for the week, create a list of the ingredients you will need, and go to the supermarket once a week. Be disciplined - if it’s not on the list of ingredients - don’t buy it.

The problem you may ask is where do I get a menu from, and how do I cook it anyway. You will find monthly magazines like “Food Ideas” or “Recipes Plus” at the supermarket which have weekly menus and easy-to-follow recipes. Now you are on your way, write up your menu for the week and create a list.

Now when you come home from work, you have the ingredients and the recipe, and before you know it, dinner is on the table. No longer will you have to face coming home from work not knowing what you can have for dinner, and you will get better at cooking as you go.

The first few weeks you may have to buy quite a few pantry ingredients but after a while you’ll find you are buying a lot less because you have things still in your cupboard.

Leftover meals are also great for lunch the next day too, so if the recipe turns out to make more than you need - no problem.

If you don’t have a decent sized freezer, spend a couple of hundred bucks and get one. They are great for being able to take advantage of specials on chicken, meat etc and great for freezing left-overs. Oh and get some of those nifty snap lock bags to keep it fresh.

I am behind with the rent and the landlord said he will throw us out of our home.

As you know there are often two sides to every story and the landlord verses tenant story is no different.

However your home is very different to anything else. Its where you live, it’s your place of gathering with family, its where you feel safe, all the things you own are there, very important memories are all part of your home, the threat of losing your home can be the last straw in a string of money troubles you may have.

The picture of the greedy landlord throwing the poor family out into the snow is an image we all recognise.
I know this is hard to do but let’s also look at this from the landlord’s point of view and see how he is feeling about not getting paid his rent.

First of all, an assumption we make is because the landlord owns the house he must be rich, especially if he owns more than one rental property, and therefore if he doesn’t get his rent what does it really matter - he has plenty anyway.

Now this may be the case, or it also may be that the landlord is like many New Zealanders’ who got caught up in the recent property boom and mortgaged his house to get the deposit to buy a rental property with the idea that the rent would pay for the mortgage on his rental property and the property would go up over time and all would be sweet.

Well at the time all this was going on all was sweet, but now the cold winds of change are upon us and many landlords who are in this situation are finding it difficult to make ends meet, having to pay off a large mortgage, provide for repairs, limited income and the removal of tax incentives, vacancies etc.

One of the greatest fears landlords can have is tenants not paying the rent. This creates a deep and alarming fear with them, they feel out of control, while the tenant continues to not pay any rent the amount owed grows quickly, and the likelihood of the tenant being able to pay becomes less and less, and their concern about how they will pay the mortgage grows.

What was a workable arrangement regarding one or two missed rents, has become aggressive phone calls from the landlord, threatening legal action, and eviction, and you the tenant wondering what to do next.

Half the battle in any dispute whether it’s a world war or and tenant and landlord conflict, is being able to understand the problem’s both parties face. There is an Indian saying “something about walk a mile in my moccasins”.

The solution? Either the tenant or the landlord can apply to the Tenancy Tribunal for mediation hearing. These informal but enforceable hearings are adjudicated by an experienced person whose objective is to formalise some kind of ongoing arrangement which works for both parties.

Arrangements could include a payment arrangement to cover the repayment of arrears over an extended period, or could include the tenant perhaps doing some work around the property or whatever you can agree. The Tenancy Tribunal will do whatever it can for you to make an agreement which you can manage.

I have a finance company loan and I think they are ripping me off!

The finance industry is extensively regulated and the obligations is for all lenders including banks to provide properly documented loan documents where the all the costs are disclosed and that those costs meet what is considered reasonable and fair.

Your loan agreement should set out all the elements of payments, how much interest you will pay over the term of the loan, the interest rate on a daily and yearly rate, and what costs could be charged to your account in the event you default on your loan.

Finance companies and banks go to considerable trouble to see that their loan documents and charges comply with the regulations covering the industry.

Your loan document should now provide information on the Financial Markets Authority Disputes Resolution providers, who if you have a complaint that you feel is not being addressed by your finance provider will act on your behalf to resolve the issue.

A common complaint will come from a borrower who is in arrears and continues to miss payments over a period of time and when the loan comes to the end of the term finds they still have a larger-than-expected balance to pay on the loan.

From the finance company or banks perspective they have based their loan to you on the expectation that you will make the payments on the due dates until the loan is repaid. If you do not do this, the lender will incur costs including their own interest costs, which they can and will charge to your account, but they must be specified in your loan agreement.

Can they charge anything they feel like? No they can only charge the costs which are specified in the loan agreement and also must be a true reflection of the actual costs. For instance they may charge to call you, email you, send you a missed payment letter, if your loan remains in default they may charge you legal costs, court costs, a visit from the company to your work or home.

Depending on the size of your loan, these costs can quickly add up to more than you borrowed in the first place. Remember a loan is not like owing a bill to someone like your mechanic, a loan is a lot more like hiring a trailer or a concrete mixer - you are being charged for as long as you are using it or until you have paid it back.

I have had my car fixed and the cost is way above what I was quoted what can I do about it?

Being charged more for having your car repaired than the quoted price problem, could also be applied to anything where you feel you have been treated unfairly, for instance when you have done some work, or sold some product and service and not been paid.

The simple answer is file a claim with your local Disputes Tribunal. The Disputes Tribunal is a part of the District Court and they are in all the main centres throughout the county.

The role of the Disputes Tribunal is to assist people or businesses to resolve in a less than formal court room setting issues or claims that they are unable to resolve between themselves.

Ok so here is how to use the Disputes Tribunal:

a) Go to the Ministry of Justice website and click on the Disputes Tribunal. Print out and complete an application form.

b) Make 3 copies, include any written evidence like a copy of the quote, any correspondence, say emails, or letters you have written and include payment for the application. The costs are on the web site (currently $60.40 up to $5000 claim). Post or drop off at the District Court.

c) You will receive a letter from the court telling you the date of the hearing. As you have made the application, the hearing will be held in the closest court to you. If the other people live somewhere else they will need to go to their local court or arrange a teleconference prior to the date of the hearing with the court.

d) When you attend the court, the only people there will be the judge, you and the other person or business. Neither you nor the other people can bring a lawyer however you can bring with you a support person, and if its relevant, a witness who will be called by the judge but who will not be allowed to sit in the hearing.

e) When stating your case try to be brief, simply say what has happened, how you want the case resolved. (may be money, a credit on the amount you paid, your car back whatever)

f) If you can reach a solution at the court, all good and well, the judge will make a court order which is enforceable in the District Court, the same as all Court Orders. If you cannot reach agreement the judge will likely reserve the decision and you will be informed by mail.

g) The enforcement of a Court Order can be discussed with your local District Court. If you are dealing with a business, its more than likely they will comply with the Court Order but if not go back to the District Court who can advise you on further action.

I have lost my job and canít afford my loan payments what should I do?

First things first. Take stock of your financial circumstances - look to see what payments you need to make and when they are due.
If you have received some holiday pay or redundancy don’t go out and spend up large to drown your sorrows, that money may need to last you a while.

Clearly if you have lost your income you will not now be able to make payments on your loans, or the car you bought recently.
Make a list of payments you have to make and call the company and let them know your situation. Ask that they suspend your payments for a month to allow you time to find another job, let them know if your situation changes before then, you will get back to them. Put what you have said in writing either by letter or email, make a note to yourself about who you spoke to and what they said.

Finance companies and banks are required to act reasonably to a borrower’s change in financial situation if they don’t have the ability to make their payments; this means they are unlikely to be unreasonable in accepting a reduction in the amount of your payments or suspension as long as you can provide evidence of a change in your circumstances.

The key to having your payments reduced or suspended for a period of time is the loan must not be in default or arrears when you make the request. If you have been dodging the lender, not making any payments, and then approach them to reduce your payments they will have no obligation to do so.

If you can, get the name of the person who will be handling your account and keep in touch, probably weekly, letting them know how you are getting on, you will be providing background to your arrears which they will record in your file.

Remember when the finance company or bank suspends your payments or reduces your payments, interest and fees will continue to add up, so if you currently owe $2000 and you have your payments suspended for a couple of months the amount you owe will have increased, so don’t hold back making your payments when you have a new job as interest will be adding to interest.

While your account will show payment reduction or suspension, your responsible attitude will have been recorded with the company and you could expect that they will be responsive to further lending once you loan has been repaid.

By acting in a responsible manner, this will prevent the finance company or bank loading your account with Veda who are the credit reporting agency in NZ, on the other hand if you just ignored them, they certainly would. It's also good to remember that many employer's credit check their prospective employees.

If you have a credit card this is something you should know.

We all know that having a credit card and paying the full amount when its due means you pay no interest, and as the banks tell us we can get up to 55 days free credit…. Good thing!

But here is something you may not know. Let’s say your credit card balance is $1100, things are a bit tight this month so you pay $1000 instead of the $1100, you think to yourself no problem you don’t mind paying a bit of interest on the $100 you didn’t pay.

Well think again! What really happens is if you don’t pay the entire amount due, you get charged interest on the total amount regardless of how much you paid off the balance.

The above scenario is a real case. What’s the cost to our happy credit card account holder? They were charged interest of $30 for the whole $1100 even though they had paid $1000 of the balance due.

So here’s a tip. If you can’t pay the entire amount of balance due, just pay the minimum because the bank is going to charge you interest on the lot no matter how much you have paid.

Even better, plan on paying the whole balance and pay no interest. By the way banks are not so keen on customers who do this; they call them “freeloaders”.

I own a property, have a mortgage at the bank and had taken out another loan with a finance company and now canít afford the payments. What should I do?

Before the global finance crisis the finance industry considered that a home owner was a lot better risk than a non home owner no matter how much was owed on the house and would lend far more than for non home owners.

Since the GFC things have changed, a lot of finance companies found that home owners who had mortgages and additional loans with a finance company were often in a far worse financial situation than someone who was renting.

If this has happened to you and you simply can’t pay both the mortgage to the bank and the finance company payments here’s a couple of suggestions.

If you find yourself caught in the financial headlights, freak out and just do nothing, you will be at the mercy of other people’s decisions; if you are prepared to take control of the situation then you have choices and options.

Banks and finance companies are dealing with people who can’t meet their payments all the time, so first of all don’t be embarrassed about discussing your problem with them, it’s something that they deal with every day.

In the pecking order of things the mortgage you have with the bank ranks ahead of your later finance company loan secured by your house.
If you fail to pay either the bank or the finance company both can take action to enforce a mortgagee sale of your property, however the likelihood of the finance company selling your house will depend on the value of the house and the mortgage.

If you have a $400k house and you owe $50k to the bank, it’s in the interest of the finance company to sell your house to recover the loan, however if the bank’s mortgage is $300k then the finance company would think carefully before taking action to sell your house because along with the cost of selling the house they have to pay the bank from the proceeds, plus any additional fees which could well soak up any remaining value the finance company could receive.

So now you know the worst case outcome, let’s have a look at some positive ideas to help.

First of all if you find you cannot meet the payments contact the lenders. Sure they may huff and puff about you making the payments due, but making payment arrangements which you can meet is a lot better outcome for the lender and you, and they know this. (Warning don’t insult their intelligence by making some ridiculous offer like $5 a month as some “friends” might suggest)

Some people simply pay nothing if they do not have enough money, this is a big mistake, if your payment is $400 a week and you simply can’t pay that amount pay $300 or $200 by not paying anything it signals to the lender they are dealing with a person who is a “not a willing payer”
Make sure whatever payments you are making are constant; this makes you a “willing payer” and are much more likely to have the confidence of the lender.

Finance companies and banks are required to act reasonably to borrower’s change in financial situation if they don’t have the ability to make their payments; this means they are unlikely to be unreasonable in accepting a reduction in the amount of your payments as long as you can provide evidence of a change in your circumstances.

The key to having your payments reduced for a period of time is the loan must not be in default or arrears when you make the request. If you have been dodging the lender, not making any payments, and then approach them to reduce your payments they will have no obligation to do so.

If all else fails you will be served a property law notice by either lender, this means you have a set period to pay your arrears or the property will be sold by public auction. At anytime up to the sale taking place you can pay the arrears and stop the sale process.
In the event the property does go to mortgage auction and sells you will receive the balance after the lenders have been satisfied, if there is nothing left you are last.